Stamp Duty Land Tax

Contents

Historical background and the collection of data relating to property
Tax rates
New Leases
Special issues relating to commercial property
 

Historical background and the collection of data relating to property

Stamp duty land tax (SDLT) is the modern equivalent of the old stamp duty.  Stamp duty, which now only affects shares, is a tax on documents.  At one time, many kinds of document were subject to this tax. At one time, hats had to be stamped.  Eventually, there were only two kinds of document which could be stamped.  They were Deeds and Stock Transfer Forms.  The evidence for payment of stamp duty appeared by an official impressed stamp showing the amount on the document.  

Before 2003, stamp duty applied to almost all deeds where there was a consideration or a payment of money.  Not all transactions were subject to stamp duty.  If a property was sold for less than £60,000 (in 2003) there was no duty to pay.  The Stamp Office (the department of the revenue which handled stamp duty) also required that for all conveyancing transactions, there should also be delivered to the Stamp Office a particulars delivered (PD) form.  The purpose of the form was to collect information about property transactions for the purpose of accumulating valuation data and verifying the calculations of Capital Gains Tax and Inheritance Tax. This form, which was usually completed by the buyer's solicitor was routinely sent to the stamp office with the conveyancing deed.  The deed would then have an official Inland Revenue stamp impressed upon it bearing the words "Produced".  Only if the "Produced" stamp appeared on the deed would the Land Registry allow registration of the transaction to proceed.  This system was inefficient because the collection of stamp duty and the collection of data from the PD form were handled by separate departments within the Stamp Office.  Furthermore, it required the solicitor to send the conveyancing deed to be sent to the Revenue with the additional risk of it being lost in the post!

Reform finally took place with the installation of a new computer system at the Inland Revenue.  Stamp Duty Land Tax replaced the old Stamp duty.  The Revenue designed a new set of forms.  The main form (SDLT1) was the successor of the old PD form, except that the questionnaire is much longer.  The Revenue's computer system is designed to scan the forms, assimilate the data on it, and keep it on the Revenue's massive database.  It also prints out Stamp Duty Land Tax Certificates (form SDLT5).  It is now no longer necessary for the Deed to be sent for production to the revenue but the form SDLT5 has to be obtained to produce to the land registry. 

Many solicitors have bemoaned the introduction of the SDLT1 because it is such a lengthy form (as compared to the old PD form) and it is not yet possible to print out ready stored information from a case management system onto the form.  The form (whether in paper or electronic form) has still to be filled in manually.  That is why many solicitors are now making a separate charge for the completion of this form.  

Tax rates

• Disadvantaged Area Relief – No Stamp Duty for properties up to £150,000 for residential property (this relief is no longer available for commercial property).
• Payable only if transaction substantially completed.  Therefore not payable if you ‘flip on’ the contract.
• If a transaction is part of a larger series of transactions, the aggregate of those transactions is used for calculating stamp duty.

Sometimes buyers pay for more than one unit from the same developer at the same time.  The Revenue will pick this up on its computer and make an enquiry.  This will not be considered as a series of transactions so long as the purchases were separate transactions and not linked to each other as part of some global arrangement.  The following is an extreme example of how a buyer can be trapped by this provision.

Example:  New apartments in a block are being sold for £140,000 each.  The property is in a designated disadvantaged area.  No stamp duty is therefore payable for the purchase of one apartment.  An investor comes along and decides to buy two apartments.  He approaches the developer and asks if there is a discount for buying two apartments instead of one.  The Developer gives him a discount of £5,000.  The buyer has made a mistake.  He may have saved £5,000 from the price but the prices have to be added together for stamp duty land tax purposes because the transaction is linked.  The tax is therefore £8250 (3% of £275,000).  The buyer has therefore lost £3250.  Of course, his solicitor would check with his client at the outset whether this is a linked transaction and on finding out about the discount, would advise his client to renegotiate!

New Leases

Under the heading "tax rates" we have set out the rates of stamp duty land tax in relation to the purchase price.  A new lease (if it has a premium in it might be subject to more than one element of stamp duty).  For any new lease granted on a property, there could be Stamp Duty Land Tax payable in relation to the rent.  There is a set of rates held by the revenue (which we do not publish here) showing how this element of the stamp duty land tax is calculated.  This element of the tax rarely affects residential property but it will usually considerably affect commercial property.  If you would like to find out the tax element on the rent in relation to a new lease, please click here to go to the relevant section of the Inland Revenue Website and use their calculator.

Special Issues relating to Commercial Property

There are more complex issues involving stamp duty land tax when the property being purchased is commercial property.  For example, VAT can be payable on a commercial property and the VAT element is added to the purchase price for the purpose of calculating stamp duty land tax.  For more discussion on Stamp Duty Land Tax as it affects commercial property, click here.

Back to top
Back to Contents page on taxes affecting property
Commercial Investment Property